Vol. 6 LM1 Portfolio Planning and Construction

Question 1

Concept

can be defined as a program developed in advance of construction a portfolio that is expected to define the client’s investment objectives

p 4

Answer 1

portfolio planning

Question 2

Document

This is the starting point of the portfolio management process

p 4

Answer 2

Investment Policy Statement (IPS)

Question 3

Concept

communicates a plan for achieving investment success

p 4

Answer 3

IPS

Question 4

Document

typically developed following a fact-finding discussion with the client

p 4

Answer 4

IPS

Question 5

Typical format

IPS

p 4

Answer 5

A typical format will include the client’s investment objectives and the constraints that apply to the client’s portfolio

Question 6

The client’s objectives are specified in terms of …

p 4

Answer 6

risk tolerance and return requirements

Question 7

IPS coverage

constraints

p 5

Answer 7

covers factors that need to be taken into account when constructing a portfolio for the client that meets the objectives

Question 8

typical categories

constraints section

p 5

Answer 8

• liquidity requirements
• time horizon
• regulatory requirements
• tax status
• unique needs

Question 9

IPS

types of constraints

p 5

Answer 9

• internal
• external

Question 10

Major components

IPS

p 5

Answer 10

• introduction
• statement of purpose
• statement of duties and responsibilities
• procedures
• investment objectives
• investment constraints

Question 11

IPS

describe introduction

p 5

Answer 11

This section describes the client

Question 12

IPS

this section describes the client

p 5

Answer 12

introduction

Question 13

IPS

describe statement of purpose

p 5

Answer 13

This section states the purpose of the IPS

Question 14

IPS

This section states the purpose of the IPS

p 5

Answer 14

describe statement of purpose

Question 15

IPS

describe Statement of Duties and Responsibilities

p 5

Answer 15

This secton details the duties and responsibilities of the client, the custodian of the client’s assets, and the investment managers

Question 16

IPS

This secton details the duties and responsibilities of the client, the custodian of the client’s assets, and the investment managers

P 5

Answer 16

Statement of Duties and Responsibilities

Question 17

IPS

describe Procedures

p 5

Answer 17

This section explains the steps to take to keep the IPS current and the procedures to follow to respond to various contingencies

Question 18

IPS

This section explains the steps to take to keep the IPS current and the procedures to follow to respond to various contingencies

p 5

Answer 18

Procedures

Question 19

IPS

describe Investment Objectives

p 5

Answer 19

This section explains the client’s objectives in investing

Question 20

IPS

This section explains the client’s objectives in investing

p 5

Answer 20

Investment Objectives

Question 21

IPS

describe Investment Guidelines

p 6

Answer 21

This section provides information about how policy should be executed (e.g., on the permissible use of leverage and derivatives) and on specific types of assets excluded from investment, if any.

Question 22

IPS

This section provides information about how policy should be executed (e.g., on the permissible use of leverage and derivatives) and on specific types of assets excluded from investment, if any.

p 6

Answer 22

Investment Guidelines

Question 23

IPS

describe Evaluation and Review

p 6

Answer 23

This section provides giudance on obtaining feedback on investment results

Question 24

IPS

Components in Appendices

p 6

Answer 24

• Strategic Asset Allocation
• Rebalancing Policy

Question 25

IPS

This may include a statement of policy converning hedging risks such as currency risk and interest rate risk

p 6

Answer 25

strategic asset allocation (SAA)